Health Care Costs and Reform

(Editors note: Dan Vorhaus pointed out an error in an earlier version of this introduction concerning the SCOTUS blog. We’ve corrected the error. Thanks Dan.) In light of the Supreme Court’s ruling this week largely upholding the health care reform law, we’re reposting a story we did back in March.
If you missed the news about the ruling there is plenty out there to help you make sense of it all. The SCOTUS blog sponsored by Bloomberg Law has some helpful summaries of the decision as well as posts detailing its core points. And almost immediately after the 5-4 ruling, most major papers had coverage including the Washington Post, New York Times and the Wall Street Journal.

This post from our archives looks more broadly at issues related to health care costs.

Robert Pearl, MD

In the lead up to this week’s arguments at the Supreme Court over the health care reform law, 23andMe got the opinion of two doctors on what’s ailing the country’s medical system.
On separate visits we heard from Bob Kocher, an MD and partner at Venrock who previously served as a special assistant to the president for Healthcare and Economic Policy and was instrumental in writing the reform law. A few weeks after hearing from Kocher we heard from Robert Pearl, also an MD and the Executive Director and CEO of The Kaiser Permanente Medical Group. Under Pearl’s leadership Kaiser has been singled out as an example of how to deliver quality affordable health.

While Kocher’s and Pearl’s opinions on the law and whether the court will uphold it diverged on some points, both men offered a pretty grim diagnosis if some sort of reform doesn’t go forward. Spending on health care continues to grow more rapidly than the economy as a whole. We now spend about 18 percent of our GDP on health care or — a larger share than what we spend on manufacturing or retail trade. Back in the early 1960s health care costs were only about 4 percent of GDP. According to Pearl, the rapidly growing costs are on course to cripple the economy.
The irony about all this spending is that while we pay out far more than any other country in the world and more than twice the average for industrialized countries, our outcomes are worse. We have lower life expectancy and higher infant mortality rates than countries that spend far less.
Under the current system there aren’t incentives for preventing diseases. All the upside is in treatment or interventions and this drives costs up.
“People have a hard time understanding that we are able to spend less and improve quality,” said Pearl.
“If every American got the same care (as they do at Kaiser) there would be 200,000 fewer strokes each year, 75,000 people wouldn’t die of cancer and the mortality rate of AIDS/HIV would be halved; sepsis in hospitals would diminish by 40 percent,” Pearl said.
Some of this is done through better use of data, integrating treatment and preventative care and effectively using technology. He pointed out that in many ways medical care is still a cottage industry in America with doctors providing “piecemeal” services isolated from each other. And he said the system is largely out of touch with the economic efficiencies and technologies we see in other sectors, like banking. He foresees simple fixes such as the widespread use of electronic records similar to the system used by Kaiser, as well as video-links for some types of doctors visits and the use of more email exchanges between doctors and patients. All these can reduce costs and improve efficiency, he said.
Much of this is in line with Kocher’s prescription for reform.

Bob Kocher, MD

Back in 2009, Kocher and several others authored a report for the Brookings Institute, called “Bending the Cost Curve,” that outlined in detail several strategies for reducing the growth of health care costs. Many of these ideas were incorporated into the health care reform bill.
He outlined for us some of the things he felt were key components of those strategies, foremost of which was moving away from paying by treatments toward a system that bundled payments. For example instead of compensating a hospital for all the different treatments they delivered to a diabetes patient in a year, the hospital would be paid one lump sum for treating everything related to that patient’s care in a year while meeting certain quality metrics.
Both Kocher and Pearl also talked about giving patients access to more information to involve them in their own health decisions and empower them to make choices. Kocher mentioned that giving people more information about the costs and performance of doctors and hospitals empowers them to be better consumers. They’ll know which doctors and hospitals have better outcomes and this will help them make smarter decisions when choosing where they spend their health care dollars. This is also the premise behind the company Castlight Health, where Kocher is on the board of directors.
Both Kocher and Pearl believe that genetics tests like 23andMe’s will play a role in making health care more personal and they believe that the tests will become increasingly more commonplace. But, as Pearl said, there is a long delay in the adoption of new technology within the health care industry. There is also a lot of negative inertia within the system in which the rewards are for treatment not for prevention.
23andMe CEO and co-founder Anne Wojcicki recently wrote about this explaining:
“If I develop type 2 diabetes, the whole healthcare system knows how to deal with it, treat and profit from it. But if I discover I am at high risk for type 2 diabetes, I change my diet and exercise patterns and successfully prevent it, no one profits but me. We believe that engaging people in their own health care by giving people access to their genetic information and informing them of how to prevent disease can help.”
While all the attention this week is on the legal questions being argued in front of the Supreme Court, this broader question about how best to lower costs, improve quality and empower people in their own health care isn’t going to go away any time soon.

Two issues that will be difficult to overcome. (1) Instilling personal responsibility for health and prevention and (2) Reseting an ingrained cost structure among providers created during a time of rich benefits/employer-sponsored coverage. Incremental improvement in each area will help but not solve the issues.

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